Dow Plunges in Wake of Fed Warnings About Economy, Fiscal Policy

The Dow and broader U.S. stock market are under heavy selling pressure on Thursday, as investors contemplate the Fed’s latest warnings about the economy.
Dow Jones, DJIA
The Federal Reserve's stimulus pledge on Wednesday didn't come without warning. Stocks have tumbled as a result. | Image: REUTERS/Brendan McDermid
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  • The Dow Jones Industrial Average plunged by as much as 384 points.
  • Fed Chairman Jerome Powell indicated Wednesday that the U.S. economy still faces downside risks from the pandemic.
  • FOMC members also expressed concerns over a lack of new fiscal stimulus.

The Dow and broader U.S. stock market declined sharply on Thursday, as investors continued to contemplate Federal Reserve warnings about the economy and lack of new fiscal stimulus.

Dow, S&P 500, Nasdaq Plunge

All of Wall Street’s major indexes declined after the open, reflecting a volatile pre-market for U.S. stock futures. The Dow Jones Industrial Average fell by as much as 384 points after the open.

Dow Jones, DJIA
The Dow Jones is under heavy selling pressure on Thursday. | Chart: Yahoo Finance

The broad S&P 500 Index of large-cap stocks tumbled 1.4%. The Nasdaq Composite Index plunged 2%.

All 11 primary sectors tracked by the S&P 500 traded sharply lower, with energy stocks leading the declines. The energy sector surged 4% on Wednesday.

A measure of implied volatility known as the CBOE VIX rose sharply through the morning session. VIX, which is commonly referred to as the “fear index,” surged 11% through the morning session.

Fed Raises the Alarm

Members of the Federal Open Market Committee (FOMC) concluded their two-day policy meeting on Wednesday by voting to leave interest rates on hold. Officials also upgraded their GDP outlook but said the economic recovery depends heavily on new rounds of fiscal stimulus from Congress. Watch the video below:

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Federal Reserve Chairman Jerome Powell said Wednesday:

The fiscal policy actions that have been taken thus far have made a critical difference to families, businesses, and communities across the country. Even so, the current economic downturn is the most severe in our lifetimes.

He added:

It will take a while to get back to the levels of economic activity and employment that prevailed at the beginning of this year, and it may take continued support from both monetary and fiscal policy to achieve that.

Republican Senators failed to advance a slimmed-down stimulus bill last week, raising doubts about whether lawmakers will pass new legislation before the election.

Earlier this week, a bipartisan coalition of lawmakers put forward a $1.5 trillion stimulus plan–a middle-road offer that urges Democrats and Republicans to return to the negotiating table. No deal has been reached. Watch the video below:

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The Fed, meanwhile, expects to keep interest rates at record lows through 2023. The central bank’s balance sheet is back above $7 trillion, evidence that the liquidity operations are unlikely to end anytime soon.

Samburaj Das edited this article for CCN - Capital & Celeb News. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

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